Behind the Scenes: Investing Takes a Lot More than Number-Crunching Skills

An On-the-Ground Perspective

There are two general philosophies or approaches when it comes to making investment decisions: “top down” and “bottom up.” Either can be successful. Top down involves looking at the big picture economics of a country first, then drilling down to the stocks that look promising within that overall view. For example, a top-down investor might shy away from investing in certain sectors — or anywhere at all — in a country undergoing poor economic growth or a crisis of some kind. A bottom-up investor will examine individual companies first, placing less emphasis on the broader macroeconomic or political environment. Even in the midst of recessions, geopolitical crises or other impediments, there are companies that can still survive and even thrive in a particular market. We fit into the bottom-up camp; we seek out individual companies with what we view as having strong prospects at good prices. Additionally, as value investors, we think crisis periods can actually be good times to pick up bargains — assuming you are patient enough to ride out the storm, and you do your homework.

Part of doing the homework involves not only examining financial statements and research reports, but actually seeing with our own eyes what’s going on in a country, and with a particular company. I spend more than 250 days a year traveling the globe, visiting as many countries and companies as I can. It can be exhausting, but it’s extremely fulfilling. I typically travel with different members of my team who have local expertise in a particular market to gain additional insights. It is truly a collaborative effort at every stage — we continually challenge each other and ask lots of questions of government officials as well as company executives and management. We like to visit not only corporate headquarters, but factories and the like where production occurs so we can see the conditions and the process, and speak with the workers.

And, we do some exploring. We walk the streets of the cities we visit, and we visit shopping centers. We see what people are buying and talk to them about what problems they have. We see how much traffic is on the roads and what the infrastructure is like — often a sign of the growth and progress that is taking place in a country. I always travel with a bicycle too, so I can get some exercise and see things I wouldn’t by car. It’s also a great way to see the countryside.

The job of a globe-trotting investment manager is part mental as well as physical. I try my best to maintain healthy habits, including regular exercise. It takes discipline at times. On some occasions, I’m expected to spend a long evening socializing with hosts in a country after having flown 12 hours, and after a long day of visiting company operations in remote locations. I also have to slip in team meetings, board meetings, media appearances and hundreds of daily emails and calls (in addition to penning my thoughts for my blog and LinkedIn!). So, fitness is a priority for me, and I get some of my best ideas over my exercise breaks. I listen to news podcasts while I work out and mull over the day’s activities as well as what’s going on in the world. I also do a lot of reading in my spare time and like to visit local museums and festivals to get a sense of a country’s culture during my breaks from meetings.

The World Belongs to Optimists

If you focus on all the problems in the world today, it’s easy to fall into a sense of despair. While past performance may not be indicative of future results, I think it’s fairly safe to say there have always been problems in the world in the past, and there will always be problems in the future. There are certainly numerous problems in many emerging markets and investing in them does not come without risk. If you focused on only the negative, you’d never take a risk, and you’d never reap any benefits either. That’s true in life as well as in investing.

However, I see problems as potential opportunities. The fall of communism and the coming together of nations around the world, combined with the emergence of China and India as free market economies, have created opportunities for the creation of wealth that are unparalleled. Today, the rise of social media, smartphones and the like has created greater transparency and helped bring to light corruption, rights abuses and other social ills. Today, people can make their grievances known and inspire revolutionary change. Examples of this kind of change can be seen in the “Arab Spring” in the Middle East, in new openness in Myanmar (also known as Burma), and in recent elections in India and Indonesia that have resulted in new government leadership that will (hopefully) encourage reform and promote private enterprise.

Of course, no one has all the answers. Investing always requires making decisions based on insufficient information. There is never enough time to learn all there is to know about an investment and even if there were, equity investments are like living organisms undergoing continuous change. You have to be able to stomach taking risks at times, and to be wrong sometimes too. And, since I’m a LinkedIn Influencer and I have a presence on Twitter, people are not shy about telling me why they disagree with my ideas at times. I take it all in stride.

Here are some of the investment maxims inspired by the late Sir John Templeton that I follow:

Dr. Mobius’s comments, opinions and analyses are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. Because market and economic conditions are subject to rapid change, comments, opinions and analyses are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment or strategy.

Important Legal Information

All investments involve risks, including possible loss of principal. Foreign securities involve special risks, including currency fluctuations and economic and political uncertainties. Investments in emerging markets, of which frontier markets are a subset, involve heightened risks related to the same factors, in addition to those associated with these markets’ smaller size, lesser liquidity and lack of established legal, political, business and social frameworks to support securities markets. Because these frameworks are typically even less developed in frontier markets, as well as various factors including the increased potential for extreme price volatility, illiquidity, trade barriers and exchange controls, the risks associated with emerging markets are magnified in frontier markets. Currency rates may fluctuate significantly over short periods of time and can reduce returns.